Friday, September 18, 2015

WASHINGTON—Sen. Bernie Sanders, whose liberal call to action has propelled his long-shot presidential campaign, is proposing an array of new programs that would amount to the largest peacetime expansion of government in modern American history.

In all, he backs at least $18 trillion in new spending over a decade, according to a tally by The Wall Street Journal, a sum that alarms conservatives and gives even many Democrats pause. Mr. Sanders sees the money as going to essential government services at a time of increasing strain on the middle class.

His agenda includes an estimated $15 trillion for a government-run health-care program that covers every American, plus large sums to rebuild roads and bridges, expand Social Security and make tuition free at public colleges.

To pay for it, Mr. Sanders, a Vermont independent running for the Democratic nomination, has so far detailed tax increases that could bring in as much as $6.5 trillion over 10 years, according to his staff.

A campaign aide said additional tax proposals would be offered to offset the cost of some, and possibly all, of his health program. A Democratic proposal for such a “single-payer” health plan, now in Congress, would be funded in part through a new payroll tax on employers and workers . . .

Tuesday, September 15, 2015

The “doves” are right to point out that higher interest rates will lead to a repricing of many securities, aka a crash. But years of near-zero interest rates have made this inevitable. Continuing on the current course will only allow structural distortions caused by these interest rates to fester and an inevitable reckoning that will be much worse than seven years ago.

The master fallacy underlying so much economic commentary is to imagine that a handful of experts in Washington should be setting the price of borrowing money. Instead, the Fed should set markets free.

In their theory of business cycles, the Austrian economists Ludwig von Mises and Friedrich Hayek explained several decades ago that artificially cheap credit misleads entrepreneurs and investors into doing the wrong things—which in the current financial context includes making unsustainable, levered investments in risky assets, including companies loading up on debt to buy back and boost the price of their stock. Low interest rates may create an illusion of robust markets, but eventually rates spike, assets are suddenly revealed to be too highly priced, and debt unpayable. Many firms have to cut back production or shut down, unemployment rises and the boom goes bust.

The Austrian diagnosis leads to an unorthodox prescription: Rather than provide “stimulus” to boost demand during a slump, the Federal Reserve and Congress should stand aside. Recessions are a painful but necessary corrective process as resources—including labor—are guided toward more sustainable niches, in light of the errors made during the giddy boom period.

In 2000 the stock market, bloated by earlier Fed rate cuts, started falling when the tech bubble burst. Markets bottomed out in 2002, as the Fed slashed rates. Although people hailed then-chairman Alan Greenspan as “the Maestro” for providing a so-called soft landing, in hindsight he simply replaced the dot-com bubble with a housing bubble.

When the housing bubble eventually burst, the crisis was much worse than in 2000. When Lehman Brothers failed in September 2008, it seemed as if the whole financial infrastructure was in jeopardy. And Fed Chairman Ben Bernanke followed the same playbook: cut interest rates.

When near-zero-percent interest rates did not jump-start the economy, the Fed launched a series of “quantitative easing” (QE) programs, buying unprecedented amounts of Treasurys and mortgage-backed securities. The Fed has roughly quintupled its balance sheet, going from $905 billion in early September 2008 to almost $4.5 trillion today.

The U.S. stock market rose with each new wave of QE. Does this wealth represent genuine economic progress? Economic growth is still far below previous recoveries. Unfortunately, the performance of equities, as well as the unprecedented increase in public and private debt, may be another asset bubble in the making, leading to another inevitable crisis likely worse than in 2008.

At its core, the market economy is a homeostatic mechanism that self-corrects by cleansing mistakes from the system. When policy makers—in the Fed or Congress—try to spare us from all pain, they cripple that mechanism and ironically make the system vulnerable to a major crash.

Friday, September 11, 2015

Venezuela long ago became a one-party state, but its lawlessness keeps getting worse. On Friday a Venezuelan court found 44-year-old opposition leaderLeopoldo Lópezguilty of a trumped up charge of inciting violence and sentenced him to nearly 14 years in prison. . . Like South Africa’sNelson Mandela,Mr. López is becoming a powerful political symbol from his prison cell. . . .

Congressional elections are scheduled for December and polls say that in a fair contest Mr. López and the opposition would thump Mr. Maduro’s United Socialist Party of Venezuela. With growing food shortages, increasing violent crime and hyperinflation, Mr. Maduro might still have to cancel or rig the election to avoid losing control of the unicameral legislature. But that could spark widespread social unrest—which is why Mr. López remains in prison.

The environmental lobby has tried to turn climate change into a "social justice" issue even though its anticarbon policies disproportionately harm the poor. Honest Democrats are starting to admit this, as we saw in this week’s stunning revolt in the California legislature. . .

The Governor hailed California as a model of green virtue at the Vatican this summer and had hoped to flaunt sweeping new anticarbon regulations at the U.N’s climate-change summit in Paris this year.

The chief beneficiaries of the Golden State’s green government have been the well-to-do, while low- and middle-income Californians have borne most of the regulatory costs. . .

Tuesday, September 8, 2015

Mark Perry of the American Enterprise Institute, Adam Ozimek of Moody’s Analytics and Stephen Bronars of Edgewood Economics reported last month that the restaurant and hotel industries have lost jobs in all three numbers and discovered that the “first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division.” That is a conservative estimate, he notes, as the data include areas outside city limits, where the minimum wage didn’t increase.

This comes as no surprise. In 2014 the Congressional Budget Office found that increasing the minimum wage to $10.10 an hour would result in employment falling by 500,000 jobs nationally. By the way, less than 20% of the earning benefits would flow to people living below the poverty line, as University of California-Irvine economist David Neumark has pointed out. . .

If government makes something more expensive, businesses will use less of it. Hourly wage mandates continue to drift higher than what consumers can absorb through increased prices. Entry-level jobs will become increasingly scarce as businesses use labor more efficiently and, in some cases, turn to automation.
In particular distress is the youth population. In July, labor-force participation for those ages 16 to 19 stood at 33.5%, the fifth-lowest level since the Bureau of Labor Statistics began compiling the data in 1948. Four of these lows have occurred in the past 18 months.

So what’s the solution? The first step is realizing that income inequality is a symptom of a larger problem. Raising the minimum wage to reduce inequality is like giving an aspirin to someone who has a brain tumor. It may appear sympathetic and for a moment alleviate the headache, but it won’t cure what is ailing the patient.
The real problem is that more than six years of progressive economic policies—higher taxes, more regulation, ObamaCare, Dodd-Frank and more—have eliminated opportunities. The poverty rate remains at levels generally observed during recessions. Child poverty is at its highest point in 20 years. The U.S. Census Bureau reports that for the first time since it began compiling the data, business closures each year have been exceeding new business startups. . .

There is only one thing that will decrease poverty and increase opportunity: economic growth. And history has clearly shown that there is only one system that can produce economic growth sufficient to meaningfully reduce poverty and increase opportunity: free enterprise. The best development for workers would be a thriving economy in which growing companies have to compete for their services.

Friday, September 4, 2015

By Patrick Moore a co-founder and former leader of Greenpeace - WSJ an excerpt . . .

When President Obama and Secretary of State John Kerry visited Alaska this week, they pointed to the receding glaciers as evidence that humans are the cause of “dangerous,” even “catastrophic,” climate change. Messrs. Obama and Kerry have been seriously misinformed by their advisers, including chief science adviser John Holdren, who is a leading alarmist on the subject.

If only the president had consulted the history of Glacier Bay, where the Huna Tlingit people have lived for more than 4,000 years, he would have found a different story.

It is a historical fact that the glacier in Glacier Bay began its retreat around 1750. By the time Capt. George Vancouver arrived there in 1794 the glacier still filled most of the bay but had already retreated some miles.

When John Muir, founder of the Sierra Club, visited in 1879, he found that the glacier had retreated more than 30 miles from the mouth of the bay, according to the National Park Service, and by 1900 Glacier Bay was mostly ice-free.

All of this happened long before human emissions of greenhouse gases, including carbon dioxide, could have had any impact. . .